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Sebi tweaks SLB norms to woo institutional investors

The Securities and Exchange Board of India has once again tweaked the regulations for the stock lending and borrowing mechanism to attract institutional players in the segment.

The Securities and Exchange Board of India (Sebi) has once again tweaked the regulations for the stock lending and borrowing (SLB) mechanism to attract institutional players in the segment.

According to the latest amendments, a lender or borrower of shares will be allowed to roll over the positions once the tenure of the contract comes to an end. The rollover would be available for three months, that is, the original contract plus two rollover contracts.

?Any lender or borrower who wishes to extend an existing lent or borrow position shall be permitted to roll over such positions, that is, a lender who is due to receive securities in the payout of an SLB session may extend the period of lending,? said the Sebi circular.

Similarly, a borrower who has to return borrowed securities in the pay-in of an SLB session, may, through the same SLB session, extend the period of borrowing. The rollover shall be conducted as part of the SLB session, it added.

This arrangement, however, will not permit netting of counter positions, that is, netting between the ?borrowed? and ?lent? positions of a client.

Market players say the latest amendment has made the SLB window quite investor friendly, but add it is too early to judge if there would be many takers. They say that insurance companies should be allowed to participate in SLB.

SLB refers to a mechanism wherein investors can lend or borrow their idle shares through the clearing corporation/clearing house of stock exchanges to earn interest.

Lending and borrowing of shares is a vibrant segment in the developed markets with many institutional entities actively participating in such trades.

The mechanism became operational in India in 2008 with Sebi allowing a seven-day tenure. With market players giving it a thumbs-down, the regulator increased the tenure to 30 days and, then, made it one year in 2010. The scheme was launched to enable settlement of securities sold short.

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First published on: 23-11-2012 at 02:59 IST
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